Real estate firms set for merger

DUBAI: Abu Dhabi's two biggest real estate developers have reached an initial agreement to merge via a share swap, with a final deal expected to be signed in the coming weeks, sources said yesterday.

Aldar Properties and Sorouh Real Estate have a combined market capitalisation of about 10 billion dirhams ($2.7bn), which would make the proposed merger one of the biggest conducted by listed firms in the Middle East.

The merger would create a state-backed company with combined assets worth nearly $15bn, and could help to repair Abu Dhabi's weak real estate market by ensuring better coordination of new property developments.

With the support of the Abu Dhabi government, which owns a major stake in Aldar, managements of the two companies have held discussions for nearly a year on asset valuations, financial terms and the new management structure, the sources said.

The merger will be based on a share swap and will not involve a cash payment, two sources said.

"The deal had the blessing of the state from the beginning but it was always a matter of getting an agreement on the valuation," said a senior banking source said.

"A lot of permutations and combinations were put forward and there was involvement from the highest authorities when it looked like things were getting out of hand."

Shares in both companies rose sharply in response to news of the initial merger agreement, although it is not clear whether the deal will be beneficial to investors in both; that will depend on the ratio of the share swap. Aldar shares jumped 10.7pc and Sorouh surged 13.7pc.

Mergers among companies in the Gulf are not common as shareholders, who are often powerful local families, tend to demand high valuations and are reluctant to cede control.

A planned merger between Dubai's largest developer, Emaar Properties, and the property unit of conglomerate Dubai Holding at the peak of the emirate's real estate crisis in 2009 was ultimately called off.

Abu Dhabi's intention to merge Aldar and Sorouh was first announced last March, as the emirate conducted a review of its economy in the wake of the global financial crisis. Real estate prices in the emirate have tumbled over 50pc in the last few years following the 2008 global financial crisis and because of oversupply of new properties.

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Aldar Properties And Sorouh Real Estate In Advanced Merger Talks

The two Abu Dhabi-based developers both reported higher quarterly profit on Wednesday even with asset writedowns.

Abu Dhabi’s top two developers – Aldar Properties and Sorouh Real Estate – said their government-backed talks were at an advanced stage.

The two companies also both reported higher quarterly profit on Wednesday, albeit with impairments and asset writedowns as valuations fell, highlighting glum conditions.

Their merger talks were started against the backdrop of continuing oversupply and declining house prices. Prices in Abu Dhabi were expected to fall 5 per cent this year, a Reuters poll found.

“The due diligence is pretty much complete. It is only a matter of a little more patience before a final announcement,” Sorouh Real Estate chief financial officer Richard Amos said.

“These things take quite a lot of time,” he said. The two companies, which started talks in March, had previously said a decision on whether to merge would be reached by June.

Aldar – the larger company and which built the Yas Marina Formula One Circuit, home to the Abu Dhabi Grand Prix – said a valuation review ahead had prompted it to write down 737 million dirhams ($201 million), mainly related to hotel assets.

Aldar took provisions for impairments and write-offs of Dhs932 million, compared with 2.5 million a year ago. Sorouh took a fair value loss of Dhs126.5 million on investments.

Abu Dhabi has spent over $10 billion on Aldar, equivalent to the amount it needed to rescue Dubai from a bond default in 2009. In return, land on Al Raha beach, the Ferrari World Theme Park, and other key assets, were sold to the government.

Aldar posted a 43 per cent rise in third-quarter net profit to Dhs206 million, on revenue that nearly halved to 1.6 billion. Profit grew as the company wrote back Dhs431.5 million of excess accruals and recoverable costs written off previously.

Meanwhile, Sorouh reported a net consolidated profit of Dhs129 million, up 55 per cent. Income got a boost after Sorouh reversed Dhs40 million in contingency provisions for its Sun and Sky towers, which have been completed. Quarterly revenue fell 9.8 per cent to Dhs803 million.

The developer said its results were buoyed by revenue from national housing projects – government-awarded schemes to build homes for UAE citizens – which rose to Dhs607 million from 68 million.

Source: http://gulfbusiness.com/2012/11/aldar-properties-and-sorouh-real-estate-in-advanced-merger-talks/#.UJtV6CLQvIU